Opinion: Cheaper in bulk? Not usually
Conventional wisdom has it that when you buy in bulk you get a better deal. Once again, the insurance industry confounds this notion. This is because insurance relies on the ability to discriminate between risks.
Wednesday, March 4th 2009, 10:04AM
by Russell Hutchinson
Buying them in bulk is like buying the traditional mixed bag of sweets. There are always some you don’t like.
When you insure a group you hope there is a reduction in selection risk – essentially the risk that the sicker the applicant, the more they want to cover and so they select to apply.
Weighing heavily against this is the reality that you have also given up the right to discriminate. In very large groups this matters less – but in the sizes common in New Zealand it’s almost never the case.
Under pressure from the marketing folk, in the past it has occasionally become a joke – with minimum group sizes being malleable under heavy pressure. The opportunity to obtain insurance cover for a sickly, middle-aged entrepreneur at the cost of providing some for his office and warehouse staff was sometimes a price he was only too willing to pay.
So unless the employer is paying for the cover, a healthy individual will almost always be better off making an individual, underwritten application.
The lesson is that although most life insurance policies are largely undifferentiated, an individual applicant’s risk, you see, is not a commodity.
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